Two-Sided Market


DEFINITION of 'Two-Sided Market'

A market in which market makers (or specialists) are required to give both a firm bid and firm ask for each security in which they make a market. In other words, those making the market must be willing to both buy and sell at the prices they quote.

Also known as a "two-way market".

BREAKING DOWN 'Two-Sided Market'

People mainly use this term in the context of the Financial Industry Regulatory Authority (FINRA) requirement that Nasdaq market makers give both a firm bid and firm ask for each security in which they make a market. However, this term can also be applied in the bond market. For example, some broker-dealers make two-sided markets on larger, actively traded bonds and rarely make a two-sided market in inactively traded bonds. The theory is that this helps to enhance liquidity and market efficiency.

  1. Bond

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  2. Nasdaq

    A global electronic marketplace for buying and selling securities, ...
  3. Winner-Takes-All Market

    A market in which the best performers are able to capture a very ...
  4. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context ...
  5. Market Maker

    A broker-dealer firm that accepts the risk of holding a certain ...
  6. One-Sided Market

    When the market for a security only shows either one bid or one ...
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